States get proactive on transportation infrastructure spending
This article appears in the 2019-2020 edition of CSG East’s Perspectives Magazine.
During the spring of 2019, Maine transportation officials planning to make $59 million in road and bridge improvements suddenly hit a familiar barrier: lack of funds.
After receiving three bids for a dozen projects that came in more than 40 percent above the expected budget, officials had to cancel the work. A shortage of skilled labor and high material costs contributed to the exorbitant bids, which took officials by surprise.
“If you asked me back in January if I would have been talking about canceling a lot of work, I would have said no,” Transportation Commissioner Bruce Van Note told the Portland Press Herald when the decision to abandon the projects was announced last May.
While the sudden spike in highway construction costs was unexpected, finding ways to afford critical upgrades to the region’s aging infrastructure has become a recurring challenge for state and local government leaders.
Part of the challenge stems from the decline in federal fuel tax collections, which are the primary source of funding for highway and bridge infrastructure. The tax was not designed to keep pace with inflation; since 1993, the federal excise tax has remained unchanged, at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel. Its current value is around 40 percent of what it could buy in transportation improvements in 1993.
In addition, the taxes have become less reliable as automakers produce more fuel-efficient vehicles and introduce electric models, leading drivers to buy less gasoline. These are among the reasons why federal infrastructure investment, as measured as a percentage of the U.S. Gross Domestic Product, has dropped over time.
Alternatives to Taxes
In recent years, proposals to raise the federal gas tax have consistently hit a dead end. Last summer, the prospect of higher federal fuel taxes was floated amid discussions around a major federal infrastructure bill that did not materialize. Other proposals included enlisting private sector investment in infrastructure upgrades and paying for upgrades through tolls or other user fees.
In the face of persistent federal inaction, the most common way for states to raise funds has been by increasing the state fuel tax; since 2013, 31 states have done so. Among them is Vermont, where in 2013, lawmakers approved a 6.5 cent increase to collect enough revenue to qualify for matching federal interstate construction funds. By law, the federal government contributes 90 percent of the cost of a project covered by those funds, and states must raise the remaining 10 percent. In an interview in October 2019, Vermont State Representative Patrick Brennan said the decision to increase the tax was a short-term solution; he was skeptical that voters would currently support another tax increase.
“That was a heavy lift for us,” said Brennan. “I think before we go back to that well, we are going to be looking for other federal solutions.”
As chair of the CSG/ERC Transportation Policy Committee, Brennan has worked with his colleagues from the Northeast to explore alternative funding and financing opportunities. The committee has submitted testimony to Congress and sent resolutions to congressional representatives urging increased investment in the region’s transportation system. In all of these efforts, the committee’s goal is to help lawmakers forge a long-term solution, said Brennan.
Pennsylvania State Senator Kim Ward, who serves as vice chair of the CSG/ERC Transportation Policy Committee, said Congress should consider alternatives to raising the federal gas tax, such as granting states more flexibility to finance federal-aid highways and providing states with incentives to establish public-private partnerships. She also called on Congress to reduce unfunded federal mandates and to embrace a national vision for a long-term policy that would charge drivers a user fee based on vehicle miles traveled.
Ward, who chairs the Pennsylvania Senate Transportation Committee, is promoting innovative funding strategies for transportation infrastructure in the state and at the national level. “Gas taxes are not the answer as a sustainable source of funding, due to the current and future trends of alternative-fuel vehicles and more efficient vehicles using our roadways,” said Ward.
The Keystone State has more state-maintained roads than New York, New Jersey, and New England combined, and the third-largest state-maintained bridge system in the nation. Residents already pay the second-highest gas tax in the country from a 2013 multimodal investment plan, but the state continues to face funding challenges to support critical upgrades on its extensive transportation network. The state’s top funding challenges are declining gas tax revenues from alternative-fuel vehicles and more efficient vehicles, diverting money toward the state police from the Motor License Fund, and rising material costs, said Ward.
In Maine, which last increased its state gas tax in 2011, policymakers are exploring a number of options to resolve their persistent funding shortfalls. In recent years, the state has relied on some $100 million in annual bond issuances to maintain and repair highways and bridges, and there is growing frustration with that practice, said Maine State Representative Andrew McLean, who chairs the Joint Transportation Committee.
“This is no way to fund our transportation,” said McLean. One of the consequences of bonding is that it pushes out other investments, like funding for higher education, he added.
McLean is chairing a recently formed bipartisan blue-ribbon commission, which has been holding a series of public meetings to educate lawmakers and the public about the magnitude of the funding crisis and to consider long-term, sustainable solutions.
The 15-member commission includes state and local officials; representatives from trucking, construction, and railroad industries; and members of advocacy groups. The commission will have the ability to draft and report out a bill, said McLean.
The group is looking at a number of policy options, including creating a sales tax on transportation items, increased highway tolling, fees for hybrids and electric vehicles, and allocating a larger contribution from the state’s general fund, said McLean. “Nothing is off the table,” he added.
McLean was among the national and regional transportation leaders who attended a special CSG/ERC Transportation Policy Committee meeting convened by Brennan in New York City last November. Committee members explored potential funding and financing solutions, such as mileage-based user fees and other innovative programs that could provide much-needed resources to close the funding gap and increase investment in a safe and efficient transportation system.
“CSG has been really terrific with providing resources, and also connecting transportation leaders in different states,” said McLean. “The networking and the camaraderie that come along with these events and those who work for CSG has been invaluable.”